The next time you go to your solicitor to get your will done, we urge you to consider whether your estate should be managed after your death by requesting your solicitor to set up a testamentary trust.
There are several types of testamentary trusts. For those who want to maintain their children by providing them with income during their minor years and beyond, a protective trust can be set up. Alternatively, a special disability trust which provides for the accommodation and care of any of the will-maker’s children or other beneficiaries who are in receipt of a disability support pension might be suitable for your estate.
Testamentary discretionary trusts can provide significant tax minimisation advantages, so we often suggest that our clients visit their financial advisor and discuss whether it is recommended that a testamentary discretionary trust be set up for their estate.
Testamentary discretionary trusts can also be set up for the following reasons:
- To make a gift to pensioners or occupants of subsidised housing where a means test is involved;
- To provide protection or benefit to a disabled child or other beneficiary;
- To provide financial support for any children or other beneficiaries who have gambling or alcohol addictions or are bankrupt or likely to go bankrupt.
The terms of a testamentary trust can authorise a trustee to carry on the will-maker’s business after death. In these circumstances, the trustee can only use the assets of the business to conduct the business in existence at the date of the death of the will-maker and not a different business but the trustee can promote, extend or improve that business. If the will does not provide for the trustee to carry on the business then all the trustee can do is carry on the business as necessary to wind the company up.
Care and consideration must be taken in drafting the clauses that set up a testamentary discretionary trust, however, to reduce family dissension, as was demonstrated in the case of George v Kollias, which was heard by the Supreme Court of Victoria in February and March 2007. The testamentary discretionary trust in that case provided for the descendants of the deceased’s siblings for a period of 80 years, plus the spouses or de facto spouses of those descendants and any companies which had a director or shareholder with voting rights who were among the named beneficiaries of the trust. When the potential beneficiaries numbered 67, which consisted of 15 separate family units, some 10 years after the death of the will-maker, one of the beneficiaries approached the Court seeking an order for the variation of the testamentary discretionary trust to split the trust’s fund of approximately $17 million into 15 individual and separate funds of equal value, to be managed by the person at the head of each of the 15 family lines. The impetus for the beneficiary’s application was family dissension following the decision of the trustees to grant distributions from the fund based upon financial need rather than equality, due to the discretionary nature of the fund. The Court ruled against splitting the fund into 15 equal parts on the basis that this would increase administration and costs and would potentially deny beneficiaries of the fund the ability to be granted large distributions if a large distribution met their current needs.
If you would like the drafting of your testamentary trust to be given the care and consideration that it needs to provide the best solution for your family and extended family, contact Geoff Roberson to discuss the matter further.
